Its called transmogrification.
Colors for sure, but "transmogrifying" armor and weapons is too much. If you wear a Dwarven Plate Mail, it needs to look like a Dwarven Plate Mail because that's what it is. You shouldn't be able to make it look like a sleek Elven Plate. Or a Chain Mail Bikini. Other players need to know what the equipment is and what likely properties it has. Respect the lore of the setting and the designer's work.
It's up to the devs to make unique armor like Shadowheart's good enough to use, or to provide similar upgrade options to maintain the same look. They kind of failed already with that since you're better off putting her in the first Scale Mail you find, which is like 10 minutes in the game. They also failed with Lae'zel armor but for the opposite reason. Her starting armor is so good it's a popular thing to snatch it from her. Which is about as out of character as it gets for her to let you take her armor.
I understand, of course that's true. I hadn't even thought of that. From this point of view, armor upgrade options are more appropriate. Depending on the situation, there may also be penalties or restrictions when trying to wear special armor like Lae'zel's. The armor of Valygar & Keldorn from BG 2 immediately comes to mind. I would at least only make Lae'zel's armor character bound. Finally, later you will have the option to take the Githyanki Patrol armor.
